Year-End Dividend Strategies

Hard to believe but we're basically sixty days away from 2014.  It's time income-oriented investors considered locking in one more dividend payment before year-end. 

One simple strategy to accomplish this is by creating and then sorting a list of companies expected to make

one more dividend payment before the end of 2013.  Many websites maintain recent and past dividend payment records but I have found Dividend.com to be one of the best sources of upcoming dividend information.  Most of their information is free… and near the top you can click on the search ex-dividend dates tab.

For those of you who are unfamiliar with ex-dividend dates or other basic dividend terminology, reviewing some of my previous articles will get you up to speed.  Check out Three Tips For New Dividend Investors as well as the Securities and Exchange website for a good explanation of ex-dividend dates.

Suffice it to say, an upcoming dividend payment is not reason enough to invest in a company.  It's simply a starting point to builda list of companies based on the time of year.  If the ex-date parameters you enter at Dividend.com are today's date and the end of year, you will see hundreds of choices, which you can then skinny down based on other factors.

Using the criteria I set forth in my article last month: Three Easy Ways to Select & Compare Dividend Stocks  dividend growth (track record), pay-out ratio, and 52-week trading range — along with a targeted annual dividend yield near or above 3%, you'll see that McDonalds (MCD), Consolidated Edison (ED), and Exxon Mobil (XOM) offer investors near-term income and possible long-term growth.

 

Top Cheap Stocks To Watch For 2014

Source:  Data comprised using Morningstar.com,Dividend.com, and public research reports from S&P and TheStreet.com. 
All data should be considered as approximate and not intended to imply any future benefit.

These three companies are part of a distinctive club for dividend paying stocks called Dividend Champions.  Each has consistently raised their annual dividend payments for 25 consecutive years.  That's an exceptional track record of dividend increases, underscored by payment increases during two of the worst market busts (the dot.com and real-estate bubbles). 

That characteristic may be reassuring and good for fighting off inflation, however past performance is not indicative of future returns.  It's not uncommon for some companies to stay on the list simply by increasing their dividend by a mere 1% or less.  Investors today need to monitor their stocks on an ongoing basis for indications that a company may not raise their dividend, or decrease it.  One way to do this is by watching a company's dividend payout ratio. 

Once again, these same three companies stand out.  McDonalds and Exxon Mobil have very conservative payout ratios.  Con Ed's 70% is slightly above my preferred level of 60%, but compares favorably against other popularly-held utilities such as Southern Company (SO) 100% and Duke Energy (DUK) 110%.   While ED carries the higher ratio, investors are somewhat compensated for the extra risk in terms of a higher annual dividend yield, which is nearly 1.5% higher than XOM.

Next, if you look at where these three stocks are currently trading compared to their 52-week highs and third party estimated targets shown in the table, there appears to be room for upside growth.  The 52-week high is fairly easy to find at most financial websites.  Investors can also access third-party research reports through online brokerage firms such as Scottrade or TD Ameritrade.  Obviously company valuations can change over time, and it could take one, two or even five years before these stocks reach those levels but, as you develop a disciplined approach to selecting income producing stocks, data such as this helps you move toward action instead of being stuck in analysis paralysis.    

With year-end approaching, finding good dividend paying stocks with solid track records, low pay-out ratio, and room for growth can help take unwelcome surprises out of your retirement accounts. 

Disclaimer:  Long;  MDC, ED, and XOM;  For informational purposes only.  Please consult with a financial professional before investing.

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Check out some of  Robert Laura's recent celebrity interviews about money, investing and retirement:
Three Tips for New Dividend Investors

Three Easy Ways To Select & Compare Dividend Stocks

Two Truths And A Lie About Dividends